January 20th, 2011

CMHC Clarifies Refinance Exception

Refinance-MortgageAs most know by now, the government will ban insured refinances over 85% loan-to-value on March 18.

This has raised a question about mortgages registered as a collateral charge (like those offered by certain banks [e.g., TD] and credit unions).

Moving a collateral charge mortgage generally requires a refinance. However, the Finance Department’s Monday announcement didn’t carve out an exception for them. Therefore, it appeared that some people might be prevented from switching lenders if their collateral charge mortgage had an LTV higher than 85%.

We’ve now received welcomed clarification on this policy from CMHC.

Benoit Sanscartier, Director, Insurance Policy and Technology Operations, says CMHC will allow an exception to the refinance restriction for qualified borrowers who need to refinance to switch lenders. “We don’t consider these refinances in the traditional sense,” said Benoit.

The key is that the borrower must not be increasing their loan amount or amortization.

CMHC has long allowed qualified home owners to freely switch lenders if their insured mortgage is over 80% LTV, subject to the new lender’s approval and the loan amount and amortization not increasing. Even mortgagors with LTVs above 95% can switch lenders in this manner.

As a practical matter, however, some lenders don’t accept transfers when the LTV is over 90-95%. If this is relevant to you, it’s best to speak with your mortgage professional for complete details.

12 thoughts on “CMHC Clarifies Refinance Exception”

  1. While TD CEO Ed Clark was pulling Flaherty’s strings like a puppetmaster he probably had the Fin. Dept bake this exception into the rules.

  2. Great to know. Thank you for doing the digging here. 1-888-go-emili was useless, as were the cmhc account reps.
    Still worth noting to clients that an collateral charge (TD, Scotia) is just a trap at higher LTV’s. Only way out it paying your own legals. Not a chance I place a high-ratio client in these products.

  3. Good news for holders of Subprime mortgages the are coming due. Not all areas have had the increases in property value so at least they will have a chance to keep their homes. I assume that would apply to situations with firsts and seconds. I had inquires with my CMHC rep but she said no to all of this.

  4. By the way this is still not what CMHC is saying. Maybe Benoit Sanscartier needs to inform the rest of CMHC or else is he wrong?????

  5. Hi Mike,
    In this case it’s easy to get hung up on the word “refinance.” The word refinance means different things to different people.
    CMHC (from what they tell us), considers a “refinance” to be something that increases their risk. In other words, an increase in loan amount, amortization, LTV…
    For good measure, we confirmed yet again that the new parameters will not apply to a qualified borrower who is merely moving their mortgage (collateral or not) from one CMHC-approved lender to another. CMHC tells us that this is true regardless of whether it’s an assignment or a re-registration of a new mortgage. The key is that it be an amortizing mortgage where the loan amount, amortization period and/or loan-to-value ratio remain unchanged.
    Interestingly, lenders technically don’t even need to present this type of application to CMHC for re-approval (just like they don’t on a regular switch/transfer/assignment).
    The challenge is, many lenders still won’t allow this despite CMHC’s approval. Therefore, customers in collateral charges over 85% LTV will have less choice when they want to change lenders.
    Cheers,
    Rob

  6. Why is this suddenly an this issue when there are changes to the rules, when this would have been an ‘issue’ before the changes.
    The mortgage insurance is valid even if a new mortgage is registered by a new lender, and the existing one is paid out, as long as there are no new funds and the amortization is not increased. Thats it.
    Anyone who’s been around this business for a while should know that..

  7. How many times have you moved a 90% LTV collateral charge to a new lender? I’ve been in mortgages for eight years and have never done one. It takes a refinance but the new rules don’t allow refinances over 85%. I was foggy on this myself so I called CMHC’s help line a few days ago and even they didn’t know the answer.

  8. I know what you are saying, but we aren’t talking about the mortgage, but rather the Default Mortgage Insurance policy that was underwritten and paid for with the MI premium.
    As long as the terms of that insurance policy remain unchanged (amortization schedule, balance, security and LTV), it can be transferred from one approved lender to another, even if the mortgage itself has to be paid out and reregistered.

  9. It has always been my understanding that it’s not a refinance at CMHC if the terms of the mortgage as it was originally underwritten remain unchanged. This would include the amortization schedule and the remaining balance.
    So long as the original mortgage is paid out and an equal amount of funds are advanced at the new lender, there is no new premium and it makes no difference what today’s rules are..

  10. Thanks for clarifying this, Rick – it’s something I’ve always wondered about as a mortgage customer. My 5-yr term 25-yr amortization mortgage (insured through Genworth) will come to term this summer at an LTV of 87%, but the mortgage is (was?) with GMAC, who (as I understand it from the sparse hints they give) may or may not choose to renew me through Resmor. I’ve a perfect payment history, but my credit rating is not what it was before the recession. So, naturally I wondered what would be involved if moving to a new lender became necessary.

  11. I was thinking exactly the same thing. Those with insured mortgages that are registered as collateral charge who want to transfer their mortgage would be left in the cold if the LTV is higher than 85%. Just so that I understand this correctly, deals that are already on the books won’t be affected as long as it’s a refinance where there’s no increase in the mortgage amount or amortization in cases where a refinance is required even if it’s technically a transfer because the mortgage was registered as collateral charge.

  12. Hi CG,
    We got a half dozen emails expressing uncertainty about how the new rules would affect one’s ability to change lenders with a collateral charge. In addition, when even the slightest doubt exists, we’re always nervous to post anything definitive about CMHC policy without confirming directly from CMHC. That’s why we did this piece.
    It sounds like you’ve been around for a while so you would know that several lenders don’t allow refis above the government’s refi LTV threshold (presently 90% LTV and soon to be 85%). These lenders don’t care if the insurance remains in force or not, and they don’t care that the loan and amortization aren’t increasing.
    Therefore, as a practical matter, the increasing frequency of collateral charges and the lower refi threshold now make this a bigger issue.
    Cheers,
    Rob

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